2 SOCIALIST CHINAChinese petroleum industry is controlled by 3 major players all of whom are state owned incl. CNOOC, CNPC (PetroChina), Sinopec;Over the years China has retained firm control of key & strategic industries in the country;These industries have been under absolute state control:power generationMining i.e. CoalOil & PetrochemicalsTelecommunications etc.

3 COMPANY BACKGROUND (SINOPEC)One of the largest integrated energy and chemical company in ChinaChina Petroleum and Chemical Corporation (Sinopec Corp.) is the largest refiner and petrochemical producer in China.Public company listed in Hong Kong, New York, London and ShanghaiParent company is state-owned China Petrochemical (Sinopec Group),Government of China controls about 75% of the company through the Sinopec Group.Its businesses include:oil and gas exploration and production;crude oil processing;oil products trading,transportation,Distribution and marketing;petrochemicals manufacturing.owns more than 29,055 gas stations 643 franchises

6 COMPETITORS Exxon, BP and Royal Dutch/ShellHowever foreign companies have established strategic partnerships with Chinese companiesIntra-competition among the SINOPEC Group of companies20,000 private / Independent gas stationsSPC has managed competition well because of the government's price controls and its proximity to large customer base

9 Industry Key Success FactorsCategoryKey Success FactorsIntegrationVertical integration is more successfulInnovationResearch and developmentTechnological advancementAbility to advance in new areasManagement structureAdaptable management structureEfficient management structureMarketing and Distribution relatedProximity to the marketStrategic partnerships and linkages are critical.A solid track recordExperience of company personnel to undertake workFast technical assistance and Customer satisfactionSkills and capability relatedSkilled workforce is a major KSF in the sectorCommunication with clientShort delivery time capability and constant liaison with clients

10 SINOPEC KEY SUCCESS FACTORSintegrated upstream, midstream and downstream operationsstrong oil & petrochemical core businessescomplete marketing networkestablished a standardized structure of corporate governanceadopted a management system of centralized decision-making,delegated authorities at different levels andBusiness assets and principal markets are located in the east, south and middle part of China, where China's most developed and dynamic economy lies.business operations handled by specialized business units

11 CHINESE FEATURES / SOCIALIST STATE1978 Deng XiaopinIntroduced a program of market socialist reform;China has since grown & became a regional & global economic force;China has recorded double digit real GDP growth since 1980’s;China is said to be contributing app. Half of the Asian GDP;Since the reform, GDP rose from 150 Billion USD to more than 1.6 trillion USD;Under this regime private sector share of GDP rose from less than 1% in 1978 to app. 70% in 2005.

12 2005 MARKET REFORMPrivatisation was almost halted / partially reversed;All strategic industries were consolidated into SOE, the rational being to increase international competitive national industries;There are about 150 or more large SOE reporting to Govt.SOE’s contribute to increased state revenue.Private ownership is in the main restricted to secondary & service industries.

13 CHINESE FEATURES Exchange Rate:Macroeconomic policies and government regulationsgovernment is liberalizing the market entry regulations on petroleum and petrochemicals sectorSector is subject to entry regulations to a certain degreeIncluding issuing of licencesSetting maximum retail and distribution prices for diesel, gasoline & jet fuelsImposing of special levies, tax and feesFormulation of quotas for import and exportExchange Rate:China implements an administered floating exchange rate regime based on market supply and demand with reference to a basket of currencies in terms of the exchange rate of RMB.issuing crude oil and natural gas production license, issuing crude oil and refined oil products business license, setting maximum retail, distribution and wholesale prices for gasoline and diesel, and ex-refinery price for jet fuels, the imposing of the special oil income levy and other tax and fees, formulation of import and export quotas and procedures, formulation of safety, quality and environmental protectionstandards

14 Participation of Multi - NationalsPartnerships have been established with SHELL & BP in the main. SOE still dominantSA MULTI NATIONAL OIL COMPANIES OWN MORE THAN 80% MARKET SHARE, WHILE A SA ONLY COMPANY THAT IS VERTICALLY INTEGRATED SASOL OWNS ONLY 10% MARKET SHARE

15 OPPORTUNITIES China has largest automotive market 1,3 billion people;2nd Largest oil consuming nation;China is concerned with energy security & has vested interest in cleaner & efficient fuels;Country is leading in key alternative fuels research & govt. is investing billions in R&D;Govt. intends to deregulate the sector to address chronic inefficiencies of current distribution.Opportunities exists for foreign oil companies to join forces with the 3 local oil companies on upstream & downstream.

16 CONCLUSIONSThe petro-chemical industry is amongst the strategic industries controlled by he state;More especially the upstream activitiesMulti-nationals are allowed some in downstream activitiesSince China is not well endowed with crude oil resources, the govt favors meaningful partnerships with other govt & multinationals in oil rich countries;Technological investmentFinancial investmentOpportunities for foreign companies exist in green technologies, JVs & partnerships